Alongside the public health effects of coronavirus, the pandemic has also unleashed almost unprecedented economic collapse. Government restrictions on movement and trade have plunged most economies around the world into recession.
The nation that perhaps most personifies the market downfall due to COVID policies is India. The country is on the verge of overtaking the UK as the world’s fifth-largest economy. For decades, India has been a major center for regional and international business, an important destination for migrant workers, and a booming commercial hub.
The heavy-handed response by New Delhi to contain the virus dealt a devastating blow to the nation’s economic progress. As sweeping closures on the country’s businesses were announced, India’s economy largely ceased overnight. The economic downturn was led by the service sector: face-to-face trade industries, hotels, tourism, and other forms of hospitality, and transport segments witnessed the sharpest fall. Other areas as well such as finance, real estate, professional services, public administration, and even defense were also in negative territory by the end of the summer.
The country’s own state banks observed the single biggest first-quarter contraction ever recorded. By May, analysts were reporting never before seen losses in state-level markets, with total drops amounting to thirteen percent of gross domestic product. India-based market analysts have concluded: the COVID collapse is India’s worst recession to date.
Hopes for a rebound were also dashed after lockdowns were lifted. Much as India continued to be one of the worst-hit major economies during the third quarter period. In the September quarter, India showed a 7.5% contraction year-on-year, pushing the country yet even deeper into recession. Among the major economies of the world, only the UK and Spain shrunk sharper than India.
Most of the country’s industries are continuing to shrink, both government officials and international stakeholders are all asking the same question: what are the strong points in the economy that could propel a rebound? Some have pointed to the manufacturing industry as indeed the sector has recently reported a significant shift upward. However, analysts are skeptical of the stability and long term strength of industrial production. “As the expectation was that a combination of the pent up and festive demand will play a big role in pushing the demand, (the) manufacturing sector geared up itself by building up the inventory through the months of August and September,” explained Sunil Kumar Sinha, principal economist at India Ratings and Research. Yet this manufacturing growth needs to be taken with a pinch of salt because it is on a low base” warned Sinha, calling the manufacturing growth on the whole “uneven” at best.
One Indian sector that is showing substantial promise is one that has been growing by leaps and bounds for years, namely the country’s tech industry.
The quiet, steady, but surely increasing impact of Indian hi-tech has been a discussion among global market analysts for quite a while now. The growth of India’s influence in the sector has become two-fold.
For one, India has become an important resource pool and base of operations for India. A recent report showed over twenty-five percent of multinational corporations now base their engineering, research, and development, or shared services centers in India. According to the report published by India based research firms, many of these centers have become the second headquarters for these companies. The briefs also listed twenty-five additional global conglomerates planning to open facilities in India next year.
The second factor in India’s hi-tech prowess is the country’s startup scene. Today, India has become a technology hotspot and hi-tech epicenter, as Indian firms are expanding to Southeast Asia through setting up new facilities, strategic investment, mergers and acquisitions, and joint-venture partnerships.
The technology industry has continued to flourish even as the rest of the country is struggling to get back on its feet. Indian companies in various tech fields have secured major accomplishments despite the country’s overall economic downturn. In September for instance, Home interiors and renovation platform, Livspace, announced they had raised $90 million in their series D funding. The company’s funding is now led by prestigious investment firms around the world the likes of the Swiss Kharis Capital and South-East Asia focused Venturi Partners. Another astounding example of Indian hi-tech success during COVID-19 has been Pine Labs, a digital payments platform. Pine Labs recently announced its most recent valuation of $2 billion following its last funding round. These other stories of startup success are far from outliers. Today, there are several Indian IT firms that are still global market players.
The stability and continued growth of Indian hi-tech are the reasons why both investors and policymakers should be focused on the industry. To bring India’s economy out of its slump, strong sectors are required to create jobs, secure capital, and attract international investment. India’s leaders are beginning to shift focus from virus containment to economic rebound. In this effort it will be vital to remember: a win for Indian hi-tech will be a win for India as a whole.